Singapore Airlines is keeping its options open to push for a board seat in Virgin Australia after it doubled its shareholding in the airline, buying a further 9.9 per cent stake from co-founder
Richard Branson
for $123 million in a bid to secure influence over its direction.

Singapore increased its shareholding to 19.9 per cent, buying a further 255.5 million shares at 48¢ a share. The move came just one day after Virgin’s proposed takeover of low-cost carrier Tiger Australia was cleared by the competition regulator, with Singapore a financial backer of Tiger’s parent airline in the city state.

“Board representation is ultimately a decision of the Virgin Australia board," said Subhas Menon, regional vice president South West Pacific for Singapore Airlines. “From a Singapore Airlines standpoint, we are keeping our options open."

Virgin’s share closed up 0.5¢, or 1.1 per cent, on the news, to 46¢ in Sydney trading.

The move propels Singapore to become the largest shareholder on Virgin’s register above
Air New Zealand
. The kiwi carrier has a 17.7 per cent stake after being diluted in a recent equity placement to Singapore.

‘Strength to strength’

Aviation expert Peter Harbison, chairman of the Centre for Aviation, said the move was an obvious one from Singapore, but risked further sidelining Virgin’s other airline partners with an equity stake, and Etihad Airways in particular.

“I think [Etihad] have been increasingly sidelined" by Singapore in the Virgin Australia network of alliances, said Mr Harbison.

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“For Virgin, [the Singapore investment] provides more stability. One of the things that equity should deliver is commitment – with skin in the game, [partners] tend to be more interested in supporting you even when things get tough."

A senior executive at one of Virgin’s alliance partners said the increased equity holding of Singapore risked destabilising Virgin chief John Borghetti’s “virtual international network" with all the partners now jostling to protect their position.

“Virgin will be more steeply challenged in terms of balancing this share register now," the airline executive said.

“Singapore now have a lot of components to protect in Australia, and the real element of surprise will be if they want to make that first move on to the board, in which case everyone else follows."

The Asian airline has long looked to establish a beachhead in the Australian market to secure passenger feed on to its long-haul services. Singapore sits behind only
Qantas
in terms of the number of passengers flown on international routes from the country.

Dual play

In response to the global tie up between Qantas and Emirates, which Virgin and Singapore opposed, Singapore has added more double decker Airbus A380s and increased frequencies in the Australian market.

“Increasing our stake in Virgin Australia is another example of Singapore Airlines’ deep commitment to the important Australian market. It also demonstrates our support for the ongoing transformation of Virgin Australia, which has created a more competitive aviation market in Australia."

It is a dual play by Singapore to cement its market share and win over new passengers disaffected with the national carrier’s decision to abandon Asia as a stop off to London and Europe in favour of Emirates’ hub in Dubai.

Industry insiders have speculated for some time that any move by Mr Branson’s Virgin Group to exit what was a 22.4 per cent holding in Virgin Australia could prompt a move by one or a group of its new alliance partners and equity holders, which also include Etihad Airways, to take the company private.

There are no known plans for such a move, however with Singapore’s most recent raid, almost 50 per cent of its stock is now controlled between three airlines with Branson retaining a 12.4 per cent stake and now having indicated his willingness to sell.

Voting power

Analysts at Macquarie Equities said: “While it is currently unclear whether Branson is looking for a complete sell down, the transaction moves more of the voting power into the hands of the strategic operating partners.

“At this point there is no talk of a takeover from any of the parties, however, the interest from the partners does confirm the strength of Virgin Australia’s virtual international network going forward, as it attempts to compete effectively with Qantas’s new reach given the Emirates deal."

There has been no request for board seats, but Singapore “may have some influence over a portion of Virgin Australia’s new business" given it also held 33 per cent of Tiger Singapore, which in turn would hold 40 per cent of Tiger Australia, the analysts said.

Singapore is widely seen as Virgin Australia chief executive
John Borghetti
’s preferred partner out of Australia, due to its vast network and frequencies out of the country, deep pockets and long-standing reputation as a premium brand.

Singapore and Air New Zealand are members of the Star Alliance grouping of airlines, but Etihad is unaligned and has sought to build its own international network of airline partners via equity stakes.

Air New Zealand also said Singapore’s investment was “not unexpected".

“Clearly Singapore Airlines sees the value that we see in Virgin Australia," said a company spokeswoman. “We are complementary shareholders with no direct overlap in the markets we fly. Virgin Australia is an independent company with its own Board and it’s good that Virgin has such strong shareholders."

An Etihad spokesman said the airline did not comment on shareholder activity involving its equity alliance partners around the world.

“We have a very strong relationship with Virgin Australia which has been built up over several years and continues to deliver significant benefits to both airlines," the Etihad spokesman said.